Economic situation

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Right now the most critically affected is the tourism industry, which covers travel companies, accommodation, catering, conferences, seminars and events. The next worst hit is transport, and problems will come after some delay to industry and services. In effect the entire private sector will be affected by the situation.

The main problems for companies are:

  • Liquidity problems from loan liabilities and overdrafts
  • Staff remaining at home, especially in jobs where remote working is not possible, and the question of who should pay them
  • Compulsory leave as an alternative to redundancies or part-time working
  • Inflexible approaches in projects that receive subsidies, as problems may appear later because of EU rules
  • A negative shock to demand, which is already widely evident

Last updated: 07.04.2020 16:29

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The restrictions on economic activity and movement associated with preventing the spread of coronavirus seriously undermine the functioning of our labour market and business. As the causes of the crisis are not related to the Estonian economy, the Government is obliged to do its utmost to mitigate the impact of the crisis on both businesses and households. The further development of economic conditions is unclear, and it is important to monitor the progress of measures to those in need. If the crisis lasts longer than expected, the country must be prepared to consider additional aid measures. Therefore, it is still early to talk about the final amounts of the financial costs of exiting from the crisis.

The impact of crisis mitigation measures in the additional budget adopted by the Parliament for 2020 on the budgetary position of the government sector is EUR 1.15 billion this year. As a result of the crisis, lower tax revenues, financing transactions and the use of reserves will increase the negative cash flow of the Treasury to EUR 3.8 billion this year. To cover the negative cash flow, the Treasury plans to borrow and issue bonds of EUR 3.5 billion. As a result, the government debt burden will rise to around 22% of Estonia's gross domestic product (GDP) by the end of the year.

Last updated: 28.04.2020 15:50

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The board of the Unemployment Insurance Fund agreed on March 18, that the Unemployment Insurance Fund plans to compensate 70 percent of salary within two months to avoid layoffs in affected companies.

According to the plan, companies whose turnover and income have fallen sharply and whose employees have no work will be compensated for 70 percent of employees' gross income for two months from March to May. Companies must also participate in the compensation themselves.

To be eligible for compensation, a company must two conditions out of three:

  1. the company's turnover must have fallen by at least 30 percent compared to the same period previous year;
  2. the company cannot provide employment for at least 30% of its employees;
  3. employees' salaries have been reduced by at least 30 percent.

The measure will apply retroactively from 1 March to 31 May, 2020. The compensation may be claimed for up to two months' salary for the period chosen by the employer within that three-month period. The measure therefore also applies to workers who have already received notice of redundancy as from 1 March.

On May 13, 2020, the Board of the Unemployment Insurance Fund decided to extend the compensation measure for payroll until June, changing its conditions. The Government of the Republic approved of the decision on May 28. Remuneration compensation is currently 50% of the salary.

Compensation shall be paid if, the turnover or income of the company has decreased compared to June last year at least 50%.

In addition, the company must meet one of the following two conditions:

  • there is no employment under agreed terms to at least 50 % of the employees of the company, and the working hours of the employees has been reduced by at least 30%,

  • the wages or salaries of at least 50 % of the employees of the company has been reduced by at least 30% or to the minimum wage.

  • The employer has reduced the working hours or the wages of the employees for the entire month of June.

  • The compensation can be applied for by both private and public sector employers, regardless of the size of the company.

  • Payroll compensation for June can be requested by the companies who have no tax debt or who have applied for deferred tax payment.

The employer can apply for compensation for employees working based on an employment contracts whose employment relationship began no later than on March 1, 2020 and for whom an entry has been made of the same date to the employment register.

  • Compensation shall be paid to those employees who have not been provided with employment as agreed by the employer or whose salary has been reduced.

  • The amount of compensation is 50% of the average monthly salary. The maximum amount of compensation is 800 euros. In addition, the employer has to pay the employee a salary of at least 150 euros (gross). The employer must make their payment before the submission of the application.

  • The employee will receive at least a minimum wage, i.e. 584 euros combined from the Unemployment Insurance Fund and the employer. If the employee has received lower salary than the minimum salary due to the part-time nature of their work, their current income level will remain the same.

  • In July, the employers can also apply for wage or salary compensation for June for those employees for whom compensation was applied for March, April or May. Therefore, the employee may receive compensation for a maximum of three months instead of two months.

  • the Unemployment Insurance Fund and the employer pay the social tax, unemployment insurance tax and compulsory pension tax and income tax on the compensation or wages, respectively.

Last updated: 04.06.2020 10:16

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The government adopted a short-term package on March 19. State funds are channelled to support businesses through KredEx and the Rural Development Foundation. The package also includes Unemployment Insurance Fund labour market support, sickness benefits, tax benefits and allows tax arrears to be deferred for 18 months. It also includes the temporary suspension of the second pillar contribution to the pension fund and the partial reimbursement of the direct costs of the cancelled events.

Content of the package:

  • Additional grants through KredEx. Read more about the services here: https://kredex.ee/en/koroona
  • Labour market services provided by the Unemployment Insurance Fund to support reduced wages. The total amount is EUR 250 million and is subject to the following conditions:
  1. the benefit is available to any qualifying employer for a period of two months from March to May 2020;
  2. the allowance shall be paid up to a maximum of EUR 1000 per month and per worker;
  3. the allowance shall be payable, as a general rule, at 70% of the gross salary of the employee over the previous 12 months, plus at least EUR 150 gross salary from the employer. The Unemployment Insurance Fund and the employer pay all taxes on wages and allowances.
  • From March to May, the state will reimburse the employee for the first three days of sick leave for all sick leave certificates.
  • Rural businesses can apply for a guarantee (up to EUR 50 million), a working loan (up to EUR 100 million) or land capital (up to EUR 50 million) from the Rural Development Foundation.
  • Advance social tax aid measure will be implemented for self-employed workers.
  • Pillar II pension fund contributions will be temporarily suspended.
  • The State will reimburse up to € 3 million of the direct costs of cultural and sporting events that were scheduled between March and April but have been cancelled due to COVID-19.

Last updated: 07.04.2020 17:59

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[Supplementary amended budget] (https://www.riigikogu.ee/tegevus/eelnoud/eelnou/9eb928f5-d085-4104-a317-ad9d767727dd/2020.%20aasta%20riigi%20lisaeelarve%20seaduse%20eeln%C3%B5u%20(171%20SE%20II) includes an aid package to construction companies so that they would survive in a recession. The construction industry will get 145 million Euros to help them maintain stability on the market.

The role of the state as a contracting entity on the market will be increased already this year but the main payments to companies will be made over the following years.

As it is very difficult to accelerate the process when it comes to large infrastructure projects, it is most important to begin with the sites that have already in development.

  • Thus, 100 million Euros of the money directed toward the construction industry has been planned as co-financing for building and reconstructing apartment buildings and small residential buildings.

  • Local municipalities will get 30 million Euros for road construction and the Road Administration will get 10 million Euros.

  • 5 million Euros was earmarked for the budget for demolition of abandoned buildings, to increase the budget for demolition support in the already existing building fund of KredEx will increase by that sum.

Last updated: 12.05.2020 23:14

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More information about the coronavirus and restrictions related to it is available calling 1247 (from abroad +372 600 1247).